This may come as no surprise, but confidence in the housing market remains weak. The National Association of Home Builders today released its June housing market index, which fell to 13 from 16 in May; any rating below 50 signals negative sentiment about the new-home market.
"Builders are being squeezed by the continuing weakness in existing-home prices — against which they must compete -- as well as rising material costs," NAHB Chairman Bob Nielsen, a home builder from Reno, Nev, said in the organization's press release. "In addition to the ongoing impacts of distressed property sales on home prices, appraisal values and consumer confidence, rising costs for materials such as roofing, copper, wallboard, vinyl siding and other components have made it extremely difficult to construct a new home and sell it at a price that covers the costs."
Such negative sentiment, and all attitudes in general, go a long way to explaining how this country found itself in such dire economic straits, says Yale Professor Robert Shiller, author of Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism among other titles.
From 1997 to 2006, home prices rose nearly 10 percent a year, according to the S&P/Case-Shiller Home Price Index, which Shiller co-developed with Karl Case. Those kinds of numbers "generated pervasive optimism and complacency," Shiller wrote in a New York Times op-ed over the weekend.
As is always the case, all good things must eventually come to an end.
"Economies have had booms and busts in the past, but this one really got out of hand," Shiller tells Aaron and Henry in the accompanying interview. People were buying "McMansions" and sometimes even second and third homes; it was not a "sensible boom".
People have sobered up since those drunken days and the idea of buying a new home -- or any home for that matter — just isn't what it used to be. (See: Shiller: Housing Could Fall Another 25% But Is Harder to Predict Than the Weather)
Back in 2005, most people expected the value of home properties to appreciate by 7 percent a year until 2015, according to an annual survey of home-buyer attitudes conducted by Shiller and Case.
Today people believe the value home properties will only appreciate by 3 percent a year over the next decade. With rates for a 30-year mortgage just above 4 percent, buying a home clearly isn't all it was once cracked up to be.
"So, it won't be surprising if new home sales remain abysmally low and few jobs are created in the hard-hit construction industry," Shiller wrote in The Times. "And it shouldn't be a shock if the personal savings rate stays at around 5 percent, as it has recently, up from around 1 percent in 2005. This would mean that consumer spending will not drive a strong recovery."
What the economy needs now is less talk and more "action" on the part of both parties in Congress and President Obama's administration.
Shiller has two remedies, but has little confidence that either will materialize in the near future:
1) another stimulus package.
2) another really big idea, like the New Deal of the 1930s.
But, in the midst of all this pessimism, he does believe there is one bright spot for the U.S. economy and financial markets: Despite these weaknesses, the U.S. is still the world's #1 economy. "We really do lead the world in financial innovation and it really grows economies and the whole developing world understands that now and so they look to the U.S. for leadership."